INDUSTRIAL

DEVELOPMENT IN INDIA

Dr. Laxmi Narayan

Assistant Professor Economics
Govt. College Tigaon(Faridabad)
E-mail: laxmi_narayan70@yahoo.com
Mob: 09990410910

LECTURE OUTLINE
Role of Industrial Development
in Economic Development
Evolution of Industrial Policy in India: Transition
from Socialist to Market Oriented Economy
Historical Review of Industrial Development
during Various Five Year Plans

IMPORTANCE OF
INDUSTRIALISATION
Provide Employment
Trickle Down Effect
Development of Social Overhead
Increase in Income and Saving
Increasing Economies of Scale
Increase in Farm Productivity
Better Utilisation of Raw Materials

INDUSTRIAL SECTOR ON
THE EVE ON INDEPENDENCE
Weak Industrial Base
Low Capital Intensity
De-industrialisation of the Country
Limited Role of Public Sector
Decline of Handicraft Industry
Iron & Steel and Jute Industries

STRATEGIES FOR
INDUSTRIALISATION
State Intervention In Industrial
Development.
Role of Public Sector

Regulations for Control and Direction of

Industrial Sector.

Industrial Licensing to Regulate Private Sector

(IDR act 1951)

Industrial Policy

INDUSTRIAL POLICY
Industrial

policy is combination of
all government regulation aimed
at regulation and control of
industrial activities in a country.

Need

of Industrial Policy:
Limited Capacity of Private Sector
Regulation of Private Sector
Regulation of Foreign Sector

EVOLUTION OF INDUSTRIAL
POLICIY IN INDIA
Industrial Policy Resolution 1948
Industrial (Dev. & Reg.) Policy 1956
Industrial Policy 1977
Industrial Policy 1980
New Industrial Policy 1991

MAIN FEATURES OF IPR 1948

Industries Classification
Public Sector 03
Public cum Private Sector 06
Controlled Private Sector 18
Private and Co-operative Sector

Importance of Foreign Capital

Domestic Protection
Industrial Relations

MAIN FEATURES OF
INDUSTRIAL POLICY 1956
Industries Classification:
- Public Sector: 17
- Public-cum-Private sector: 12
- Private Sector
Fair Treatment to Private Sector

Balanced Regional Growth

Proper Amenities to Labourers
Efficient Management of PSUs

MAIN FEATURES OF
INDUSTRIAL POLICY 1977
More Emphasis on SSIs
Labour Intensive Technologies
Balanced Regional Development
Limited Role of Large Industries
No Expansion of Big Industries
Efficient Management of PSUs

MAIN FEATURES OF
INDUSTRIAL POLICY 1980
Balanced Regional Development
with Large and Small Industries

Regularisation of Excess Capacity Installed

Development of Backward Areas

Encouragement to EOUs

REVIEW OF PRE-1991
POLICIES
Under Utilisation of Capacity
Concentration of Economic
Power
Licensing Promoted Corruption, Rent-seeking
and Discrimination
Delay in Processing of Applications
Increased Regional Imbalances

GENESIS OF NEW
INDUSTRIAL POLICY 1991
Balance of Payment Crisis
License-Permit- Quota Raj

To Unshackle the Industrial Sector from

Administrative and Legal Controls.

To Make Industry Competitive by Increasing

Efficiency

PUBLIC SECTOR POLICY

Dilution of Public Sector Role:

only 08 industries

As on Date Only 03 industries (i)

Atomic Energy (ii) Rail Transport and
(iii) Radio Active Minerals

Divestment of PSUs
Greater Autonomy to PSUs
Chronically Sick Enterprises to be Referred to
BIFR.

Facilities to Labourers

INDUSTRIAL LICENSING
POLICY

Abolition of Industrial Licensing:

Only 18 Industries Related to Security
and Strategic Concerns, Social Reasons,
Hazardous Chemicals and Items of Elitist
Consumption.

As of Now Only 05 Industries (i) Alcohol (ii) Cigarettes

(iii) Hazardous Chemicals (iv) Electronics, Aerospace and
Defense Equipments, and (iv) Industrial Explosive
Requires Industrial License.

FOREIGN INVESTMENT
POLICY

Automatic Approval for FDI up to

51 % Foreign Equity in High
Priority Industries.

This is Subsequently Increased to 74% in Some

Industries and With the Replacement of FERA (1973) with
FEMA (1999), 100% FDI is Permitted in Many Areas.

Automatic Approval for Import of Capital Goods

(Maximum Limit 2 Crore)

FOREIGN TECHNOLOGY
AGREEMENTS (FTAs)
Automatic Permission will be
Given for FTAs in High Priority
Industries up to a Lump-sum
Payment of Rs. 1 Crore.
5% Royalty for Domestic Sales and 8% for Exports,
Subject to Total Payment of 8% of Sales for 10 Year
Period
No Permission will be Necessary for Hiring of
Foreign Technicians and Foreign Testing of
Indigenously Developed Technologies.

INDUSTRIAL LOCATION
POLICY

In Cities with Less Than 1 Million

population, No Requirement of
Obtaining Location Clearance
(Except for Industries Subject to
Compulsory Licensing)

In Cities with more than 1 Million Population,

Industries will be Located Outside 25 kms (other than
Non Polluting Industries such as Electronics, Computer
Software and Printing)

OTHER IMPORTANT
FEATURES
Threshold Limit of Assets in
MRTP Companies Removed
Abolition of Phased
Manufacturing Programme

Reservation for SSIs

Removal of Mandatory Convertibility Clause

Encouragement to Industries in Backward Areas

IMPLEMENTATION OF NIP
1991
Contraction of Public Sector
Liberalisation of Industrial
Licensing Policy: Only Five Industries
are under Compulsory Licensing
Introduction of Industrial Entrepreneurs'
Memorandum (IEM) for industries not requiring compulsory
licensing
Liberalisation of the Location Policy

.contd

Five Year Tax Holidays to Power

Generation Industries

Increase in Lending Limit of

Banks

Amendments in SICA in 1993

and 2003
Increase in Investment Limit of Small Enterprises

Micro Enterprises 25 Lakh (10 Lakh)

Small Enterprises upto 5 Crore (5 Crore)
Medium Enterprises upto 10 Crore (5 Crore)

.contd

MRTP act Replaced with

Competition Act

Tax Holidays for Industries in

Backward Areas

Encouragement to Private Sector

Participation in Infrastructure

Reimbursement Scheme for Technology

Upgradation.
Setting up of Foreign Investment Promotion Board
(FIPB)
.contd

 Permission to Raise Capital

from Foreign Markets
Encouragement to Foreign
Investment
Disinvestment of PSUs

POSITIVE IMPACT OF
NIP 1991
Increase in Production
Removal of Bureaucratic Hurdles
Increase in Competition

Increase in Efficiency of Public Sector

Increase in Foreign Investment
Increase in Exports
Balanced Regional Development

Less Economic Burden on Government

CRITICISM OF NIP 1991

Concentration of Economic
power
Increase in Unemployment
No Evidence of Positive Effect
on Productivity
Ignore Social Objectives
Distortion in Production Structure: Growth of
Capital Goods Industries Declined

Adverse Effect of Small Scale

Industries
Misplaced Faith in Foreign
Investment
Danger of Business
Colonisation.
Personalized Relationship and Corrupt Practices
still Continue
Increase in Regional Imbalances

INDUSTRIAL DEVELOPMENT DURING

PLAN PERIOD
Outlay
(Rs. Crore)

% of
Tgt
Act.
total Gwth Gwth
Outlay Rate Rate

Large

Small

1ST

55

42

4.95

7.5

2ND

938

187

24.0

6.6

3RD

1726

241

23.0

14.0

9.0

4TH

2864

243

19.7

8.0

4.5

5TH

8989

592

24.3

7.1

5.9

6TH

20407

1780

22.8

6.9

5.5

7TH

25971

3249

13.4

8.7

8.5

8TH

40588

6334

10.8

7.3

7.4

9TH

33587

8384

8.2

8.2

5.0

IMPORTANT HIGHLIGHTS
OF DIFFERENT PLANS
First Five Year Plan (1951-56):
Many Basic and Heavy Industries,
Set Up, Namely: Sindri Fertiliser,
Chitranjan Locomotive, HMT, U.P.
Cement Industry, Indian Telephones, Indian Cables,
DDT and Penicillin Factories.
Second Five Year Plan (1956-61): Based on IPR
1956 and Mahalanobis Model; Major Industries:
Steel Plants at Bhilai, Durgapur and Rourkela.

Third Five Year Plan (1961- 66):

Focus on Expansion of Heavy
Industries. Major Industries: Bokaro
Steel Plant, Machine Tool Factory
at Pinjore and Hyderabad
Fourth Five Year Plan (1969-74): No Worth While
Change in Industrial Structure
Fifth Five Year Plan (1974-79): Focus on
Development of Core/Basic and Export Industries,
Balanced Development, Modern Technology

Sixth Five Year Plan (1980-85):

Main Objective - Optimum
Utilisation of Existing Capacity
and to Increase Productivity.
Focus: Capital Goods Industries
Specially Electronic Industry,
Adoption of New Technologies.
Seventh Five Year Plan (1985-90): Main Objective Increasing Production of Consumer Goods and to
Increase Productivity. Focus: Achievement of Self
Sufficiency in Defense Production, Development of
Sunrise Industries like Electronics.

Eighth Five Year Plan (1992-97):

More Importance to Private Sector,
Public Sector in Core and Basic
Industries only; Top Priority to Capital
Goods Industries.
Ninth Five Year Plan (1997-2002): More Importance to
Private Sector, Development of Backward Areas, Increasing
Industrial Efficiency, MRTP Ceiling Removed.
Tenth Five Year Plan (2002-07): Focus on Infrastructure
Development, R&D, Technical Development and
Modernization. Special Concessions to EOUs.

ELEVENTH FIVE YEAR

PLAN(2007-12)
Strengthening Manufacturing Sector,
Making Indian Industries more Competitive,
strengthening infrastructure,
Focus On Pharmaceuticals, AutoComponents and Textiles
Special Concessions for MSME and Labour Intensive
Industries
Emphasis on Technological Improvement
Wider Role for Private Sector
Flexible Labour Laws

ACHIEVEMENTS DURING
PLANNING PERIOD

Vast Network of Infrastructure

Developed
Increase in the Share of Industrial
Sector in National Income: 16% to
25.9%.
National Defense and Self independence
Development of Public Sector
Moderanisation
Increase in Foreign Collaboration
Increase in Government Income

DEVELOPMENT OF STRONG
INDUSTRIAL BASE

INDUSTRIES
Finished Steel
Electricity
Crude Oil
Fertilisers
Cement
Passenger Cars
Cloth

UNITS
Lakh Tonnes
Bn. kwh
Lakh Tonnes
Thousand
Tonnes
Lakh Tonnes
Thousands
bn. sq. Mtrs

1950-51 2007-08
10
552
5.1
704
03
341
18
14738
27
7.9
4.5

1683
1545
55

WEAKNESS OF
INDUSTRIAL EVELOPMENT
DURING PLANS
Under-utilisation of Capacity
Irregular Increase in Industrial
Production
Increase in Monopoly Power

Poor Performance of Public Sector

Industrial Sickness
Industrial Disputes
Poor Quality Production
Regional Imbalances

ABBREVIATIONS USED
FDI Foreign Direct Investment
SSIs Small Scale Industries
EOUs Export Oriented Units
PSUs Public Sector Units.

MRTP - Monopolistic & Restrictive Trade Practices

FERA - Foreign Exchange Regulation Act

FEMA - Foreign Exchange Management Act

SICA Sick Industries Companies Act

BIFR Board for Industrial & Financial Reconstruction

NEW/KEY TERMS
Excess Capacity
Trickle Down Effect
Competition Act
Labour Relation

Memorandum of Understanding (MOU)

License-Permit-Quota Raj

Balanced Regional Growth

Phased Manufacturing Programme

REFERENCES
S.C. Kuchhal, Industrial
Economy of India Chaitanya
Publishing House.
R.K. Misra AND V.K.Puri,
Indian Economy Himalaya
Publications.
Ruddar Dutt and K.P.M. Sundaram, Indian
Economy Sultan Chand.
Uma Kapila, Understanding the Problems Of
Indian Economy Academic Foundation.

FAQs
Evaluate Industrial Development
during the Period of Planning in India.

What Have been the Causes of Slow

Industrial Growth during Planning
Period?

Explain the Industrial Policy Resolution of 1991. What

New Changes have been Introduced in it? Evaluate it.

Discuss the Main Features and Shortcomings of New

Industrial Policy of India.